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One Approach to Value Investing

The web site’s author pointed out earlier this month that while major indexes are off about 20%, “many individual stocks have been absolutely taken to the woodshed.” Many brand-name stocks are down “50%, 70%, 90% or more from their 52 week highs.”

He or she writes:

This past week, I remembered another time not too long ago that felt similar. The year was 2003. Priceline was trading for less than the cash on its balance sheet, and the company wasn’t even burning cash. Apple was trading for a few dollars above cash and no one saw anything special about this company with 4% of the PC market and a few fringe products. A funny sounding company called Research in Motion slipped below $2 per share. There are more, but you probably get the picture.

So the web site’s creator has chosen eight beaten-down stocks to buy hold. The site and blog will track their performance.

I’ll find this interesting to watch. It related to the current debate over value investing. (I wrote “The Plight of the Value Investor” on Aug. 4. Another wrinkle is this debate over whether value guru Benjamin Graham would be buying bank stocks.) Certainly there are plenty of cheap stocks in the stock market right now, but are they good deals or value traps?

Three weeks after it was created, the eight stock portfolio is up 13.6%. Impressive, but the creator has the right idea in planning to hold onto these stocks for “3 to 5 years through thick and thin,” adding: “Likely some will work out and some will fail, but on the balance I’m hoping for some shocking outperformance.”